Hey Private Equity: Are You Really the Smartest Guys in the Room?

private equityI was the CEO for several private equity (PE) owned firms and have coached numerous CEOs who worked in PE-owned firms. I’ve encountered wonderful people from PE, but also too many that behave like boorish know-it-alls — the so called “smartest guys in the room” (yup, mostly guys). I’m writing about the latter group. …

Power can corrupt, and it can cause you to breathe your own exhaust. Money creates power. Whether you were born on third base and think you hit a triple or you went to the right B-school and made partner based on your “quant” abilities, I have news for you: Your GPA, bank balance or floor-to-ceiling office window doesn’t mean you understand how to lead, strategize and build a team. And it certainly doesn’t bestow any emotional intelligence.

I’m an avowed capitalist and believe that ownership has privileges. It has the right to tell management what to do, but to do so often is foolish. Just because you can, doesn’t mean you should.

If you’ve never run a company but sit on a board or two (or six) based on your membership in an equity group, below are a few things to consider.

If you demand that your CEO and his or her team be available for long weekly meetings and drop everything to respond to your request for yet another spreadsheet, you’re preventing them from spending time with the two groups that matter more than you: customers and team members. By all means, ask for their attention and information about results, but be reasonable.

If you believe you need to control expenses at the nonmaterial level, you either have control issues or the wrong management team. Centrally controlled economies don’t work in countries such as Venezuela, and board members trying to manage in the weeds are about as effective as Nicolás Maduro.

If you believe that any mistake or budget deviation is a disaster and management should be abused like a rented mule, try it with your spouse and kids and see how that works. Shit happens. Shouldn’t happen a lot, but occasionally it’s normal. I mean, 100% of your investments go swimmingly, right?

If you believe the only way to a substantial return is to severely cut expenses to pay for debt you dumped on the company while charging exorbitant management fees to keep your floor-to-ceiling window clean, don’t be surprised at the lack of commitment and respect you foster.

If you won’t allow (and perhaps push) management to develop a crisp strategy and the plans to execute it, don’t think that your overused practice of making nonaligned, tactical decisions will save the day.

If you refuse to have transparent conversations with company leaders because they clearly can’t grasp the issues the way you do, also try that at home and see how it works.

Early in my consulting and coaching career, I worked on an assignment for a PE group, and the lead partner (one of the good guys!) took a liking to me. Over a glass of scotch, I asked him if it would be smart for me to approach other PE groups to coach their portfolio company CEOs. “Nah,” he said. “We all think we’re the smartest guys in the room.” Not all, but too many.

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